Here’s an example of how much baseball players hate salary caps. Baseball is considering a “hard slot” system for its player draft that would assign a fixed signing bonus to each position in the draft. Some thought that the Players Association might favor such a “hard slot”, as many veteran players resent the amounts paid to top draft signees. However, in response to a recent question from NBCSports.com’s Craig Calcaterra, Michael Weiner referred to the hard slot as a “salary cap”. Of course, a “hard slot” is not a “salary cap” – a hard slot affects one player’s compensation, and not an entire team’s payroll. But Weiner’s statement to Calcaterra was intended to as a metaphor – Weiner meant that a “hard slot” is like a “salary cap”, because the union hates the idea of a hard slot, just like the union really, really hates the idea of a salary cap.
My point here? For the Players Association, a “salary cap” is more than a bad idea. It’s a dirty word.
(Side note: a baseball player must be on a team’s 40-man roster in order to be eligible for membership in the Players Association. In other words, the draftees that might be subject to a proposed “hard slot” system would not be members of the Players Association at the time of the draft, and the vast majority of these draftees would not be members of the Players Association even after they are drafted and sign their first professional contract. Some of these players will never become members of Weiner’s union. No matter. Weiner is opposed in principle to any limit on a baseball player’s ability to negotiate the biggest salary possible, regardless of whether the player is a member of Weiner’s union.)
Why does the Players Association hate the idea of a salary cap with such a holy passion? After all, my proposed salary cap would directly affect only two teams, the Yankees and the Red Sox. But the union doesn’t see a cap as affecting only capped teams. As George Will (who served on Bud Selig’s Blue Ribbon Panel in 2000, and is currently serving on Selig’s “Special Committee for On-Field Matters”) once put it, “the union believes that unconstrained spending by the richest three teams pulls up all payrolls.” And the union is probably right to believe this.
Consider the recent signing of Phillies’ slugger Ryan Howard to a contract extension worth $25 million a year. Would the Phillies have committed to spend this much this soon, if the Yankees were not lurking in the wings, potentially ready to spend even more money to sign Howard as a free agent? What about the recent contract for Joe Mauer of the Twins, or the small fortune spent by the Red Sox for free agent pitcher John Lackey? Would these players have signed for less money, if the Yankees were blocked by a salary cap? Perhaps. It’s reasonable to conclude that players’ salaries receive a boost from the (uncapped) presence of the Yankees in the marketplace.
(For a terrific explanation of why baseball teams have to pay “Yankees prices” for their free agents, and in particular why the Phillies had to pay “Yankees prices” for Ryan Howard, see here.)
But as we’ve stressed throughout this series, salary caps are paired with salary floors, and the existence of a salary floor would have a positive effect on player salaries that might more than compensate for the effect of a salary cap. For example, let’s imagine that the San Diego Padres needed to add $10 million in payroll in 2010 to comply with our proposed salary floor. That would have created another bidder for the likes of a Nick Johnson. The Yankees might have had to pay a premium for a player like Johnson, to keep him from signing with a smaller market club. (A similar illustration of the effect of a salary floor is discussed here.)
Salary floors are important, because it’s not only the Yankees that drive the market for baseball players. The Red Sox came up with the $51 million posting fee required just to negotiate a contract with Daisuke Matsuzaka, The Cincinnati Reds proved to be the high bidder for free agent pitcher Aroldis Chapman. It’s San Francisco that signed free agent Barry Zito to a 7 year contract worth $126 million, the Mets that enticed free agent Johan Santana with $137 million over 6 years, the Tigers that locked up free agent Miguel Cabrera for 8 years at about $152 million, and St. Louis that retained free agent Matt Holliday for 7 years at $120 million.
Even the “poor” teams in baseball have spent significant dollars on free agents (or to keep a current player from leaving in free agency): Gil Meche at Kansas City, Jason Kendall in Pittsburgh, Eric Chavez in Oakland, Miguel Tejada in Baltimore …
It’s simply wrong to think that player salaries will be highest only if we maximize the amount of cash available in the Bronx. More cash spread among more teams will also improve the standard of living of the average major league baseball player.
Might we tempt the Players Association to accept a salary cap if the cap was paired with a payroll-boosting salary floor? No. The Players Association’s aversion to salary caps also extends to salary floors. In 2002, the MLB team owners offered to include a salary floor without a salary cap in baseball’s collective bargaining agreement, and the Players Association turned them down!
Why would the union have turned down an offer of more money from the owners? As Michael Weiner put it, “players historically have suspected that a request for a salary floor is a precursor to or a request for a salary cap.” Honestly, this attitude is difficult to understand. It’s like a child who turns down a hot fudge sundae, because an offer of ice cream is often linked to a command to eat broccoli.
If baseball players are this fundamentally opposed to a “salary cap” or anything associated with a “salary cap”, then why should we bother to consider how a salary cap might be made palatable to the Players Association? First, it’s possible that the players might change their position, if it becomes clear that a salary cap is in the best interests of the game of baseball. Remember that the Players Association was also a long-time opponent of testing players for performance-enhancing drugs. But once it became clear that baseball needed drug testing, the union (eventually, perhaps reluctantly) went along.
Also, the Players Association’s faith in free markets may be misplaced. A number of baseball analysts (including Biz of Baseball’s Maury Brown and Smith College professor Andrew Zimbalist) have pointed out that over the last ten years, baseball players’ salaries have been declining as a percentage of baseball revenues. Football, basketball and hockey players all receive a greater percentage of the revenues earned by their respective sports than do baseball players, and this is in part due to the fact that the salary caps and floors in these sports force owners to pay a higher percentage of revenues as salaries.
It may seem counterintuitive that a salary cap is good for players and bad for owners. But remember what I said at the very beginning of this series: anyone can support a salary cap, depending on how the salary cap is designed. In other sports, salary caps have been designed to win the (grudging) support of the players, with the result that these caps boost player salaries. The salary-boosting effect of caps (and floors) in other sports is so pronounced, Maury Brown recommends that baseball management abandon its prior support of salary caps. Maury figures that the free market does a superior job of “capping” player salaries.
If baseball owners can use the free market to limit player salaries, then perhaps baseball players could use a salary cap to grab a larger share of baseball revenues. To see if this is possible, let’s look more closely at the numbers. According to MLB’s Rob Manfred, baseball players earned about 52% of league-wide revenues last season. (Manfred’s percentage differs from the percentage we computed from the numbers in Forbes, perhaps because Manfred’s numbers include the cost of a team’s 40-man roster and other payroll costs that Forbes missed.) This compares unfavorably to the percentages in other sports: 56.7% in the NHL, 57% in the NBA and 59% in the NFL. Of course, making comparisons between sports is difficult, as each sport has its own unique costs of operation. However, even Manfred acknowledges that baseball players received 55% of league revenues at some point between 2004 and 2007 (he doesn’t tell us exactly when). So it’s possible, in theory, for baseball to add 3% of baseball revenues to current player payrolls.
If we use the Forbes numbers, 3% of current baseball revenues equals approximately $175 million.
Would a guarantee of $175 million in additional payroll buy the union’s support of a salary cap? Probably not. Remember that the union is opposed to salary caps as a matter of principle. The union is not likely to abandon its principles for a payroll guarantee that falls below that currently in place in the NFL, NBA and NHL. The union is not likely to be swayed by a payroll guarantee that would fail to bring payroll back to the numbers that the players enjoyed as recently as eight years ago.
Moreover, even if the players would be impressed by a $175 million offer, we’d still have to figure out how to come up with this $175 million. Forbes reports that baseball had a record-high operating income of $522 million in 2009, so again in theory, this $175 million should exist somewhere. However, the poorer teams in baseball aren’t going to contribute to our $175 million salary cap “pledge drive”, as I’ve already proposed that these teams come up with the aggregate $75 million required for my proposed salary floor. The rich teams in baseball aren’t going to contribute anything – they’re already paying the poorer teams an aggregate of $443 million in revenue sharing. The teams in the middle of the baseball pack aren’t going to pay anything either.
In short, I cannot come up with a workable minimum payroll guarantee to offer the players. About the best I can do is to tweak the salary cap and floor I proposed in part 2 of this series. My part 2 proposal was designed to be salary-neutral, with the amount affected by the cap set roughly equal to the amount affected by the floor. We can change the formula to favor the players, by cutting the amount affected by the cap. Let’s return to my cap/floor proposal from Part 2, only this time with a higher salary cap:
The chart above is the same I proposed at the end of Part 2, except that I’ve cut the effect of the cap roughly in half. We now have a proposed cap/floor that favors the players (if not by a lot). Ironically, our new cap is set at $170 million, which is exactly the current threshold amount for baseball’s existing “luxury tax”.
Let’s be clear. The players’ union is not going to accept my proposed salary cap. All I’ve offered in return for this cap is a salary floor that the Players Association does not want even in the absence of a cap. But at least I’ve acknowledged that my proposed cap and floor must be economically favorable to the players.
(Late Note From Author: Biz of Baseball reports this morning that MLB’s Rob Manfred expressed his opposition to salary caps to a Harvard audience last March. In essence, Manfred stated what I have stated here: the gap betweeen rich and poor baseball teams is too great to allow for a salary cap. So, we can add MLB’s top brass to the list of those that would oppose my salary cap proposal.)
So in brief: cap opponents will oppose my proposal. Proponents of a baseball cap will look at my proposal — $170 million cap, $62 million floor – and say, why bother?
(But note that by raising my proposed salary cap from $145 million to $170 million, the cap is now larger than the Red Sox’s current payroll. So arguably, my salary cap might now be supported by the Red Sox. This is the ultimate irony for me, a lifelong Yankee fan. After three posts and who knows how many words of analysis, I’ve come up with a proposed cap and floor that only the Red Sox could love.)
Is there any value in my proposed salary cap and floor? Or should I just give it up? Tune in Wednesday (I think) for the exciting conclusion to “Thinking Cap.”
Larry,
It becomes pretty clear that the MLBPA isn't doing a good job of advancing its' members interests, at least in the short term. As you point out, it's very biased towards older veterans, while the sport is placing greater weight on youth than it has in the past decade or two.
My gut tells me, however, that they're probably right about the cap- it's core function is to transfer wealth from players to owners. Or, put another way, it will help control labor costs.
I think at this point, you've restructured the current rules to increase somewhat, tax revenues from the Yankees to other teams, while forcing other teams to spend more on payroll. What's the actual objective? Is it to create a better cap system? If the objective is more "competitive balance" is a cap/floor even the best way to go about it?
I agree that the current system is flawed, but not sure adding a floor actually solves anything. I can see how it would be a tremendous boon the to the salaries of older veterans- teams forced to spend money to meet the floor will probably sign older players who would be willing to sign for short term (1-2 year) contracts. Since the money needs to be spent, the teams- who aren't going to be competitive no matter how many Brian Giles they can sign, will have very little leverage (or interest in) negotiating.
Does this proposal improve the status quo- if it even needs improving?
Larry,
What do you think of Rob Neyer's (not quite fisked) notion that with all of the long term contracts signed by younger players and the (relative) decrease in large contracts given to older players resulting in a larger portion of revenues going to owners in coming years than in recent past years, resulting in the players almost necessarily changing their POV to support a cap pegged to x percentage of revenues (like the NHL)?
I'm not sure that sentence entirely made sense.
Hantu, I enjoy your comments. As usual, you're a couple of steps ahead of me. I think you get my point that there's no utility in talking about caps and floors in an abstract sense, as caps and floors can be designed in a hundred different ways. The only way to discuss caps and floors is to propose a specific cap and a specific floor, and then ask the kinds of questions you are asking: what goals would be promoted by this particular cap and this particular floor? Are these goals that we want to promote? If so, is this particular cap and this particular floor the best way to accomplish these goals?
Ideally, I'd address all of these issues in Part 4. However, in Part 4 I plan to address the fact that my proposed cap and floor stand no chance of being adopted, at which point I will express grief for the fate of my proposal, then move on with my life!
So, I'll address your questions here, briefly. My proposed cap would serve only to curb the ability of the Yankees to sign free agents. A $170 million cap isn't going to affect anyone else, and as my "soft" cap would contain a "Larry Bird" exception, my soft cap would not affect the Yankees' ability to resign its own players. It's a matter of opinion whether baseball needs to place a limit on the Yankees' ability to sign free agents; I'm personally in favor of this limit. Yes, there are alternative ways to put such a limit in place; I personally like using a salary cap to establish this limit, since I'd like to establish a commitment in principle (and with my proposed cap and floor, we're strictly talking about a commitment IN PRINCIPLE) to greater parity in team payrolls.
My proposed salary floor is really a limit on a baseball team's ability to sacrifice the present for the future. I agree that it's better for a small market team to be competitive one year out of three (or four, or five) than to be consistently mediocre. So I understand the need for certain teams to focus on next year rather than this year. But it's still necessary for rebuilding teams to strike an appropriate balance, and put a reasonably decent team on the field every year. A salary floor represents one way to strike this balance.
I find it difficult to say more in defense of my proposed cap and floor, since I know that my cap and floor stands no chance of being adopted.
Im English and although Ive followed the NBA and NFL for many years now, Im relatively new to baseball.
Apart from the institutional resistance covered in these posts, a big problem that appears to me is the spread of the payroll/revenune numbers throughout the league.
I fully accept that the author is approaching this topic with the goal of greater competitive balance throughout the league. However, my (possibly naive) question would be… do baseball fans (collectively) actually want a more level playing field?
Reason I ask is that Im quite surprised that teams can spend as little 24% on payroll and still be comercially viable in the sports arena. For example, why are Pittsburgh fans consuming the product that is put on show for them? Why arent fans of this team (amongst others) applying huge pressure on their team to spend more? (By voting with their feet for example.) They have the revenue to spend more. Its not like they have to go into debt to increase payroll.
There might be very good reasons why Pittsburgh (again, amongst others) can "get away" with this but if fans are this apathetic in this regard, its not surprising that the same feeling exists throughout the entire sport and its infrastructure.
In short, I suppose Im saying that Im puzzled that a collective fanbase is keen for more competitiveness (ie via a cap of some sort) yet in many circumstances, simultaneously appears to have so much apathy towards being more competitive.
Geoff, your questions make sense! But from everything I've read, the Players' Association is firmly opposed to salary caps and to everything associated with salary caps. Admittedly, I have not seen the union specifically address whether it would support the players contracting for a guaranteed slice of baseball's revenues. Of course, the owners would have no interest in offering the players a guaranteed FLOOR, if the players were not willing to accept a guaranteed CAP … and I've seen no indication that the players would accept a salary cap regardless of what they might receive in return.
To be certain, the union SHOULD be concerned about the declining percentage of baseball revenues being used to fund team payrolls. I suspect that this will be an issue in the negotiation of baseball's next collective bargaining agreement. But I don't think that the players would consider a cap tied to revenues. Instead, I suspect that the players will adopt a different approach. For example, as Kristi Dosh suggested in comments to an earlier post, the players may go after a share of MLBAM (major league baseball advanced media) revenues.
JP, great questions.
To an extent, some Pittsburgh fans HAVE voted with their feet. Attendance in Pittsburgh has declined from about 1.8 million annually in 2002 to about 1.6 million last year. But given Pittsburgh’s on the field performance over the last ten years, this is not much of a decline. The truth seems to be that the Pirates’ core fan base is quite loyal. I find this admirable.
If you’re looking for a source of apathy, it might be more fair to look at the Pirates’ ownership. According to Forbes, the Pirates have earned over $100 million in operating income over the past 6 years. If you’re wondering, the bulk of the Pirates’ money does NOT come from its fan base. The Pirates get most of its revenues from baseball’s system of revenue sharing and other sources that are guaranteed to all 30 teams. I wrote about this here: http://bit.ly/90ikDn.
But if you wonder why Pirates fans put up with Pirates management, that’s a complicated question that I’m not qualified to answer completely. Here’s one explanation. Smart fans of the Pirates know that the Pirates cannot spend their way to success. To be certain, the Pirates could afford to spend more than they do, but that alone is not going to get the Pirates to the post-season. The best hope for small-market clubs like the Pirates is to build a winning team around young baseball players who have not played long enough to be eligible for free agency. This strategy has worked for a few small-market teams, but it’s a difficult strategy to make work. One necessary ingredient for this strategy is patience. In particular, the fan base must be patient. If fans abandon the team while the team tries to rebuild, then the team’s financial strength will be further eroded, making it that much more difficult to rebuild.
JP, I hope you comment here often! We could USE a Brit perspective.
Another great post on this topic!
I’m glad you pointed out that the MLBPA does not represent minor league players, as I think many fans are unclear about that. However, you missed why the MLBPA really won’t agree to hard slotting. I just wrote about this yesterday: http://www.itsaswingandamiss.com/2010/05/10/hard-…. The MLBPA loves seeing unproven players get whopping signing bonuses. That just makes it all the easier for a proven Major League player to get his next big contract! He simply point to the unproven guy who just got the ridiculous signing bonus and says, “Look at him. He hasn’t played a day in the Majors yet and might never. If he is worth that kind of money, I’m worth even more!”
And George Will is right… “the union believes that unconstrained spending by the richest three teams pulls up all payrolls.” If I were the union, or the players within it, I would think the same thing.
Then there’s this part: “As Michael Weiner put it, “players historically have suspected that a request for a salary floor is a precursor to or a request for a salary cap.” Honestly, this attitude is difficult to understand. It’s like a child who turns down a hot fudge sundae, because an offer of ice cream is often linked to a command to eat broccoli.” You’re missing the point – it’s an ideology issue. What’s the reasoning behind a salary floor? To improve competitive balance. What’s the reasoning behind a salary cap? To improve competitive balance. Therefore, if you support one, how can you not support both? They think they’ll have no valid argument against a salary cap if they agree a salary floor is necessary.
However, you’re also right that salaries have been declining in relation to revenues. If I was with the MLBPA, I can tell you what I’d want as part of this CBA…player sharing in MLBAM profits! I’m posting on this at some point this week, probably tomorrow. I always talk about it in my lectures and it’s definitely in my book. The MLBAM money is where it’s at in the future. It can be the great equalizer amongst clubs and improve the players percentage share of profits in MLB if structured correctly. Right now, I’d say the owners are simply getting richer and richer by the minute thank to MLBAM. You’ll have to come to my site to learn more though! J
Kristi, great point about the MLBPA and hard slotting. Personally, I'm not convinced that big contracts to draft picks will drive even bigger contracts to proven free agents. But I think you're right, the MLBPA believes it. Or maybe they believe the reverse, that if MLB caps the costs of signing draft picks, this will in some way give MLB the ability to reduce the cost of hiring experienced players. As I wrote in my post, I don't share the MLBPA's faith in free markets.
In any event, I think we'll all be talking about the hard slot proposal for many months to come. It looks like this proposal will be one of the most difficult issues to resolve in the upcoming CBA negotiations.
I don't think I missed the point about MLBPA's opposition to salary floors. It's a matter of principle as I put it, or ideology as you put it. It's not a matter of business. If the owners offer the players a salary floor, the players are not obligated later on to accept a salary cap. If I take you out to dinner, you're not obligated to pay the next time we go to dinner, you're not even obligated to go to dinner a second time. In fact, you might fairly say that we've established a precedent where I pay for dinner and that precedent is just fine with you!
Will the players come after MLBAM money? Maybe. That's a topic for a later discussion. But there's only so much MLBAM money to go around. I'd rather see the players go after a percentage of local revenues, and leave the maximum amount of national revenues to be shared with small market clubs.
If the union is oppsed to a salary cap or floor and prefer a free market then why do they cry collusion when the market makes corrections? Why do the players cry foul as in the comments made by Orlando Hudson regarding Jermaine Dye? I understand the owners have been guilty of collusion in the past and the union needs to remain vigilant. But it seems to me they don't really want a 'free' market.
James, yours is a complicated question. One simple answer is that collusion is an anti-competitive activity that is destructive to free markets. In order to uphold a free labor market, the union SHOULD oppose collusion. Of course, you're making a different point. You're saying that when the free market moves in an unfavorable direction for the players, the players fail to see (or pretend that they don't see) the market as the cause of the move, and instead they blame the owners. You may be right. I doubt that anyone loves a free market when the market moves against them. But on the whole, the players have fought diligently and consistently for a free labor market in baseball. The players' commitment to a free market here has been much stronger than that of the owners.
Also, in fairness, the owners have previously been found guilty of blaming the free market for the results of their own collusion.